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Is thyssenkrupp headed for a breakup?

, August 9, 2018, 0 Comments

thyssenkrupp-marketexpress-inAfter a bad quarterly earnings report, the German industrial giant thyssenkrupp is at a crossroads. Some investors are pushing to smash the old company apart; its recent losses aren’t helping to give it direction.

German conglomerate thyssenkrupp, which is grappling with a leadership crisis and investor calls for a major revamp, reported a quarterly loss on Thursday as big cost overruns in its industrial unit weighed on the bottom line.

The Essen-based group announced that it booked a net loss of €131 million ($151 million) in the third quarter of its financial year, after seeing a €120 million profit over the same period a year earlier. “We see a mixed picture. The bottom line is that we are not satisfied with the current results,” said interim CEO Guido Kerkhoff.

The company, which makes everything from elevators and submarines to car parts, already announced last week that it was slightly lowering its 2018 outlook because of higher than expected costs in its industrial solutions division.

The group’s underlying, or adjusted operating profit, slumped 46 percent to €332 million, while revenues were up 2 percent to €11.2 billion thanks to a rise in overall sales and order intakes.

Looking ahead, thyssenkrupp said it now expected adjusted profits before interest and tax for its 2017-2018 financial year to reach “around” €1.8 billion. But it still predicts net profit will be significantly better than the prior year’s €271 million.

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The 207-year-old firm has been in turmoil ever since Heinrich Hiesinger quit as CEO last month, shortly after completing a landmark deal merging thyssenkrupp’s steel activities with those of India’s Tata.

Supervisory board chief Ulrich Lehner followed him out the door soon afterward, warning of “many” job losses if activist investors pushing for an aggressive restructuring of the sprawling group got their way. Now following these two resignations many think that the company is indeed in danger of being broken up.

Hiesinger and Lehner who were two stalwart pillars of the current strategy to keep the company together are now gone, both justifying their resignation because of a lack of support from big shareholders. “thyssenkrupp is now at a crossroads,” fund manager Ingo Speich of Union Investment told Reuters news agency at the time.

Lehner had sharply attacked investors like Cevian and US hedge fund Elliott. He also criticized Ursula Gather, who is boss of the Krupp Foundation, which is the company’s largest and most influential shareholder with a 21-percent stake in the sprawling group.

“It seems that the foundation is moving in the direction of Cevian’s and Elliott’s positions. The foundation and Gather urgently need to clarify which strategy thyssenkrupp should take,” Lehner said.

Mixed messages

Two weeks ago the Krupp Foundation reiterated that it strongly opposed calls by activist investors to break up the venerable institution, as it battles through its leadership crisis.

“There will be no breakup of the company on my watch,” Gather told German news weekly Der Spiegel. “Job security” and “the principles of the social market economy” take precedence over a desire by some to cash in, she said.

Union leaders and the German government have likewise spoken out against attempts to break up the company, which employs some 159,000 people worldwide.